Exhibit 99.1
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Cray Business Plaza
100 Commercial St., P.O. Box 130
Atchison, Kansas 66002-0130
913.367.1480 ·
913.367.0192 (fax)
www.mgpingredients.com
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NEWS
RELEASE
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Contact: Steve Pickman,
913-367-1480
FOR IMMEDIATE
RELEASE
MGP INGREDIENTS, INC. EXITS FUEL ALCOHOL BUSINESS
ATCHISON,
Kan., February 3, 2009—MGP Ingredients, Inc. (Nasdaq/MGPI) announced
today that it is exiting the fuel grade alcohol business effective
immediately. This decision principally
affects MGPI’s distillery operations in Pekin, Ill.
In
November, the company announced that it intended to curtail fuel grade alcohol
production in Pekin until market conditions became more favorable. However, market conditions for fuel grade
alcohol have continued to erode and, as a result, the company has determined to
cease fuel grade alcohol production at the Pekin plant altogether. The company also plans to temporarily
discontinue food grade alcohol production in Pekin for a period of 90 days. This decision is not expected to affect MGPI’s
ability to service existing food grade alcohol customers since the company will
utilize existing inventories in Pekin while continuing to optimize food grade
alcohol production at its Atchison, Kan., facility.
“The
cutbacks in alcohol production relate solely to our distillery operations in
Pekin, where all but a small fraction of our fuel alcohol is made,” said Tim
Newkirk, president and chief executive officer.
“A smaller percentage of the Pekin distillery’s capacity is dedicated to
food grade alcohol. Recent adjustments
to distillery processes and equipment in Pekin should enable us to more
efficiently produce food grade alcohol in Pekin when the appropriate time to
restart that portion of our operations is determined. With these changes, we are discontinuing the
production of fuel grade alcohol as a principal product line while giving full
attention in our distillery products segment to strengthening our role as a
world class provider of high quality food grade alcohol for beverage and
industrial applications. As part of the
process of making food grade alcohol, a co-product of fuel alcohol is naturally
produced, which, in our case, will amount to about 6 percent of our total
distillery volume at this time.”
Approximately
85 to 90 percent of the Pekin distillery’s total available production capacity
of 90 million gallons annually has traditionally been dedicated to fuel grade
alcohol, with the remainder dedicated to food grade alcohol. Through the continued utilization of distillery
capacity at its Atchison plant, combined with current inventory supplies and
available capacity in Pekin, MGPI expects to maintain its strong position as a
leading U.S. provider of grain-based food grade alcohol for beverage and
industrial applications.
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“The
decision to exit the fuel grade alcohol business follows our recently stated
commitment to curtail production in this area,” Newkirk said. “More importantly,” he added, “the decision
represents another huge step in our business transformation process, which is
intended to ultimately return MGP Ingredients to profitability. Factors such as extreme and sporadic swings
in ethanol demand, volatility in raw material prices for corn, and the impact
of volatile oil and gasoline prices have made it increasingly apparent that the
fuel grade alcohol market is not one in which we currently can create value for
the company and our stockholders on a sustainable or predictable basis.”
Newkirk
added that “The food grade alcohol market, on the other hand, is an area which
provides much greater stability and where we have had a solid presence since
the company’s founding nearly seven decades ago. Although we are temporarily cutting back food
grade production at this time, we are equipped to broaden our presence in this
market in the future and credit our engineering team led by Randy Schrick, vice
president of engineering and corporate director of distillery manufacturing,
for providing us with the capabilities to do so.”
Previous
reductions in fuel grade alcohol production led to the temporary lay-offs of 14
union employees at the Pekin facility in early January. As the result of today’s announcement,
temporary lay-offs involving another 45 union employees and 20 non-union
employees at the Pekin site will take effect this week.
“Unfortunately,
this change requires several temporary lay-offs within the company,” Newkirk
said. “The decrease in the utilization
of our alcohol production capacity affects not only manufacturing roles, but a
number of complementary functions and services. The most difficult and painful
aspect of our decision is the impact it has on our workforce.”
As
previously announced, the company in November discontinued its wheat
protein and starch manufacturing operations in Pekin, consolidating the
production of these ingredients at its Atchison facility. Just prior to that,
the company ended its wheat milling operations in Atchison after entering into
an agreement with ConAgra Mills to supply MGPI’s wheat flour requirements for use
in protein and starch production.
The
majority of the Pekin facility’s proteins consisted of commodity wheat gluten,
which principally is sold for use in breads and other bakery products, as well
as in certain pet food applications. Likewise, the bulk of starches produced at
the Pekin facility generally were classified as commodity ingredients for a
variety of prepared foods, as well as bakery products.
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“As
I stated at that time, we have been very straightforward about our strategy to
strengthen MGP Ingredients by becoming a more customer-centric and, therefore,
a less production-driven supplier of value-added products, with an intensified
focus on our specialty ingredients and premium food grade alcohol products,”
Newkirk said. “The move to exit our protein and starch operations in Pekin and
concentrate our efforts on the production of value-added ingredient solutions
in Atchison, Kansas was a critical step toward achieving this goal. The
Atchison plant is equipped and has the flexibility to produce an array of
specialty proteins and starches for both food and non-food uses. It also has
available capacity to meet production requirements for certain proteins and
starches in our remaining product portfolio that are no longer being
manufactured in Pekin.”
The
consolidation of protein and starch operations together with the shutdown of
wheat milling operations resulted in a total of 52 lay-offs plus early
retirement offers for another 31 union and non-union employees in Pekin and
Atchison combined.
In
connection with the latest and previously announced business transformation
actions, the company estimates that it will recognize $17.4 million in special
charges for the quarter, including
$811,000 on equipment at the company’s Kansas City facility and $11.2 million
of which had been previously estimated and disclosed in the company’s Form 10-Q
for the quarter ended Sept. 30, 2008.
In
addition to these charges, the company has recorded a charge of $5.4 million to
cost of sales for unrealized losses as of December 31, 2008 on a natural
gas contract for its Pekin plant. With
the shutdown of protein and starch operations and the reduction and temporary
idling of distillery operations at the Pekin plant, the commitments for the
purchase of natural gas through the remainder of the fiscal year under this
contract are in excess of projected consumption. The company will continue to settle and mark
this obligation to market monthly until its expiration, which is scheduled to
occur on June 30, 2009.
“Given
recent market conditions,” Newkirk said, “we have found ourselves having to
rethink our strategy on fuel grade alcohol, while also reevaluating the
economies of our distillery operations as a whole. We have seen how the forces of change have
upset the economics of the fuel alcohol business, as well as the impact this
situation has on our prospects for long-term stockholder value creation. It is our responsibility to manage such risks
and choose the right opportunities, which is the basis of our recent decisions
related to our protein and starch, wheat milling and distillery
operations. We are not averse to
competing in commodity-related businesses, but will only consider doing so in
the future if we can achieve a sustainable competitive advantage.”
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Newkirk
concluded: “By concentrating on growing our specialty ingredients while also
building off our expertise and longevity in the food grade alcohol market, we
are re-focusing on our strongest core competencies and a more robust manner in
which we can execute our strategies. As
a result, we are confident in our ability to build strength in our core
markets, and to do so in a way that creates greater value.”
Cautionary Note Regarding Forward-Looking Statements
This
news release contains forward-looking statements as well as historical
information. Forward-looking statements are usually identified by or are
associated with such words as “intend,” “plan”, “believe,” “estimate,” “expect,”
“anticipate,” “hopeful,” “should,” “may,” “will”, “could” and or the negatives
of these terms or variations of them or similar terminology. They reflect
management’s current beliefs and estimates of future economic circumstances,
industry conditions, company performance and financial results and are not
guarantees of future performance. All such forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those contemplated by the relevant forward-looking
statement. Important factors that could cause actual results to differ
materially from our expectations include, among others: (i) the availability and cost of grain, (ii) fluctuations
in gasoline prices, (iii) fluctuations in energy costs, (iv) competitive
environment and related market conditions, (v) our ability to realize
operating efficiencies, (vi) the effectiveness of our hedging programs; (vii) access
to capital and (viii) actions of governments. For further information on
these and other risks and uncertainties that may affect the company’s business,
see Item 1A. Risk Factors in the company’s
Annual Report on Form 10-K for the fiscal year ended June 30, 2008
and Part II. Item 1A, Risk Factors in the company’s Quarterly Report on Form 10Q
for the quarter ended September 30, 2008.
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